ANNUAL REPORT
002
CHANGE LIVES
OUR MISSION TO BE THE BEST SPORTS COMPANY IN THE WORLD
THROUGH
WE HAVE
THE POWER T0
SPORT,
002
ORT 2019Targets 2019
1Results 2019 Outlook 2020
2Currency-neutral sales
increase at a rate between 5% and 8%
Currency-neutral salesincrease of 6%
Sales of
€ 23.640 billion
Currency-neutral sales
increase at a rate between 6% and 8%
Gross margin
increase to a level of around 52.0%
Gross marginincrease of 0.2pp to 52.0%
Gross marginslight decrease compared to the prior year level of 52.0%
Operating margin
increase between 0.5pp and 0.7pp
to a level between 11.3% and 11.5%
Operating margin
increase of 0.4pp to 11.3%
Operating marginincrease between 0.2pp and 0.5pp
to a level between 11.5% and 11.8%
Net income from continuing operations 3
increase at a rate between 8% and 12%
to a level between € 1.845 billion and € 1.915 billion
Net income from continuing operations 3
increase of 12% to € 1.918 billion
Net income from continuing operationsincrease at a rate between 10% and 13%
to a level between € 2.100 billion and € 2.160 billion Average operating working capital in % of net sales
slight increase
Average operating working capital in % of net salesdecrease of 0.9pp to 18.1%
Average operating working capital in % of net salesslight increase
Capital expenditure 4
increase to a level of up to € 900 million
Capital expenditure 4€ 711 million
Capital expenditure 4increase to a level of around € 800 million
1 As published on March 13, 2019.
2 Subject to change due to coronavirus outbreak in China.
3 2019 including negative impact from accounting change according to IFRS 16; excluding this impact, net income from continuing operations was expected to increase at a rate between 10% and 14% to a level between € 1.880 billion and € 1.950 billion.
4 Excluding acquisitions and leases.
TARGETS – RESULTS – OUTLOOK
003
ASANNUAL REPORT 2019Gross profit 12,293 11,363 8%
Other operating expenses 9,843 9,172 7%
EBITDA 3,845 2,882 33%
Operating profit 2,660 2,368 12%
Net income from continuing operations 1,918 1,709 12%
Net income attributable to shareholders 2 1,976 1,702 16%
Key Ratios
Gross margin 52.0% 51.8% 0.2pp
Other operating expenses in % of net sales 41.6% 41.9% (0.2pp)
Operating margin 11.3% 10.8% 0.4pp
Effective tax rate 25.0% 28.1% (3.1pp)
Net income attributable to shareholders in % of net sales 2 8.4% 7.8% 0.6pp
Average operating working capital in % of net sales 18.1% 19.0% (0.9pp)
Equity ratio3 32.9% 40.8% (8.0pp)
Net borrowings/EBITDA (0.2) (0.3) n.a.
Financial leverage 3 (12.8%) (15.0%) 2.2pp
Return on equity 2, 3 29.1% 26.7% 2.4pp
Balance Sheet and Cash Flow Data (€ in millions)
Total assets 20,680 15,612 32%
Inventories 4,085 3,445 19%
Receivables and other current assets 4,338 3,734 16%
Operating working capital 4,007 3,563 12%
Net cash 873 959 (9%)
Shareholders’ equity 6,796 6,377 7%
Capital expenditure 711 794 (11%)
Net cash generated from operating activities 2 2,819 2,686 5%
Per Share of Common Stock (€)
Basic earnings 9.70 8.46 15%
Diluted earnings 9.70 8.45 15%
Net cash generated from operating activities 2 14.26 13.31 7%
Dividend 3.854 3.35 15%
Share price at year-end 289.80 182.40 59%
Other (at year-end)
Number of employees 59,533 57,016 4%
Number of shares outstanding 195,969,387 199,171,345 (2%)
Average number of shares 197,606,107 201,759,012 (2%)
1 First-time application of IFRS 16 as of January 1, 2019. Prior year figures are not restated with the exception of the presentation of interest paid in the consolidated statement of cash flows, p. 139.
2 Includes continuing and discontinued operations.
3 Based on shareholders’ equity.
4 Subject to Annual General Meeting approval.
ANNUAL REPORT 2019
004
ABOUT THIS REPORT
With the Annual Report 2019, adidas communicates financial and non-financial information in a combined publication. The report provides a comprehensive overview of the financial, environmental and social performance of adidas in the 2019 financial year.
We publish our Annual Report exclusively in a digital format. It is available as a PDF and online version.
ADIDAS ANNUAL REPORT 2019
ADIDAS ONLINE ANNUAL REPORT 2019
↗ REPORT.ADIDAS-GROUP.COM
To enhance readability, registered trademarks as well as references to rounding differences, which may arise in percentages and totals, are omitted in this publication. In addition, we have used the masculine form throughout, although all such references are not intended to be gender- specific. The adidas Annual Report 2019 is available in English and German.
THE FOLLOWING SYMBOLS INDICATE IMPORTANT INFORMATION:
↗ There is more information online.
There is more information in a related table or diagram.
There is more information within the report.
These are parts of the non-financial statement that are covered by a separate limited assurance engagement.
SEE NON-FINANCIAL STATEMENT, P. 90
DATA AND FINANCIAL REPORTING STANDARDS
The reporting period is the financial year from January 1 to December 31, 2019. To ensure this report is as current as possible, it includes all relevant information available up to the date of the Responsibility Statement, February 25, 2020.The consolidated financial statements and the Group Manage ment Report are prepared in accordance with the principles of the International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), and additional requirements pursuant to the German Commercial Code (Handelsgesetzbuch – HGB).
Internal Control over Financial Reporting (ICoFR) provides reasonable assurance regarding the reliability of financial reporting and compliance with applicable laws and regu- lations. To monitor the effectiveness of ICoFR, accounting- related processes are regularly reviewed.
INDEPENDENT ASSURANCE
The consolidated financial statements prepared by adidas AG, including the statement of financial position, income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows, and the notes as well as the Group Management Report have been audited by KPMG AG Wirtschaftsprüfungsgesellschaft. SEE REPRODUCTION OF THE INDEPENDENT AUDITOR’S REPORT, P. 214
In addition, this report contains a combined non-financial statement for adidas AG and the Group. The content of the non-financial statement is covered by a separate limited assurance engagement of KPMG AG Wirtschaftsprüfungs- gesellschaft. SEE NON-FINANCIAL STATEMENT, P. 90 The assurance was conducted using the International Standard on Assurance Engagements ISAE 3000 (Revised). SEE LIMITED ASSURANCE REPORT, P. 219 The content of the non-financial statement combined with further information in this report and on our corporate website fulfills the Global Reporting Initiative’s (GRI) Standards ‘Core’ option. The GRI content index can be found in our Online Report. ↗ REPORT.ADIDAS-GROUP.COM
It was not part of KPMG’s engagement to review the Online Report or references to external sources such as our corporate website.
FORWARD-LOOKING STATEMENTS
Our Group Management Report contains forward-looking statements that reflect Management’s current view with respect to the future development of our company. The outlook is based on estimates that we have made on the basis of all the information available to us at the time of completion of this Annual Report. In addition, such forward-looking statements are subject to uncertainties which are beyond the control of the company. SEE RISK AND OPPORTUNITY REPORT, P. 120 In case the underlying assumptions turn out to be incorrect or described risks or opportunities materialize, actual results and developments may materially deviate (negatively or positively) from those expressed by such statements. adidas does not assume any obligation to update any forward-looking statements made in the Group Management Report beyond statutory disclosure obligations. SEE OUTLOOK, P. 117
ADIDASANNUAL REPORT 2019
005
SHAREHOLDERS
GROUP MANAGEMENT REPORT OUR COMPANY
FINANCIAL REVIEW STATEMENTS
ADDITIONAL INFORMATION
Corporate Strategy 050
adidas Brand Strategy 055
Reebok Brand Strategy 059
Sales and Distribution Strategy 061
Global Operations 063
Innovation 067
People and Culture 070
Sustainability 078
Non-Financial Statement 090
Ten-Year Overview 222
Glossary 225
Declaration of Support 228
Financial Calendar 229
Letter from the CEO 008
Executive Board 011
Supervisory Board 015
Supervisory Board Report 018
Declaration on Corporate Governance and Corporate
Governance Report 024
Compensation Report 030
Our Share 046
Consolidated Statement of Financial Position 134
Consolidated Income Statement 136
Consolidated Statement of Comprehensive Income 137 Consolidated Statement of Changes in Equity 138 Consolidated Statement of Cash Flows 139
Notes 141
Notes to the Consolidated Statement of Financial Position 155 Notes to the Consolidated Income Statement 195
Additional Information 201
Shareholdings 208
Responsibility Statement 213
Reproduction of the Independent Auditor’s Report 214
Limited Assurance Report 219
Internal Management System 092
Business Performance 095
Economic and Sector Development 095
Income Statement 096
Statement of Financial Position and
Statement of Cash Flows 100
Treasury 104
Financial Statements and Management Report
of adidas AG 107
Disclosures pursuant to § 315a Section 1 and
§ 289a Section 1 of the German Commercial Code and
Explanatory Report 109
Business Performance by Segment 114
Europe 114
North America 114
Asia-Pacific 115
Russia/CIS 115
Latin America 116
Emerging Markets 116
Outlook 117
Risk and Opportunity Report 120
Illustration of Risks 125
Illustration of Opportunities 128
Management Assessment of Performance,
Risks and Opportunities, and Outlook 130
Group Management Report: This report contains the Group Management Report of the adidas Group, comprising adidas AG and its consolidated subsidiaries, and the Management Report of adidas AG.
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5
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ANNUAL REPORT 2019FINISH
>>
CREA
TING THE NEW
>>
BRING HOME
>>
CREA TING THE NEW
>>
FINISH
>>
CREA TING THE NEW ACCELERA
TION >>
CREA TING THE NEW
>> BRING HOME
>> FINISH
>> CREA
TING THE NEW
>> BRING HOME >>
Letter from the CEO 008
Executive Board 011
Supervisory Board 015
Supervisory Board Report 018
Declaration on Corporate Governance
and Corporate Governance Report 024
Compensation Report 030
Our Share 046
TO OUR SHARE- HOLDERS
1
007 1
»2019 MARKED A SPECIAL YEAR FOR ADIDAS.
WE ARE STRONGER THAN EVER BEFORE.«
KASPER RORSTED
LETTER
FROM THE CEO
008
ADIDASANNUAL REPORT 20191
ADIDASANNUAL REPORT 2019DEAR SHAREHOLDERS,
2019 marked a special year for adidas as we celebrated the 70th anniversary of the company and the completion of our modern workplace, ‘World of Sports’, our company headquarters.
What our founder Adi Dassler started officially as a Franconian crafts business with 47 employees in 1949 is now a truly global brand and international company that has almost 60,000 employees and a presence on all continents.
As we aspire to be the best sports company in the world, we are immensely proud of our history and our roots in Germany. To this day, we live up to the philosophy of Adi Dassler, who always wanted to create the best product for the athlete. Numerous sporting highlights, such as the first world title for the German national football team in 1954, will remain forever connected with the 3-Stripes brand. Timeless products like the adidas Superstar have an established place in fashion.
It was an emotional moment for all employees, including myself, to celebrate our company’s birthday together with Adi Dassler’s daughter Siggi and other members of the Dassler family, our creative partner Pharrell Williams, tennis icon Stan Smith, football world champion Philipp Lahm, Olympic champions Laura Dahlmeier, Magdalena Neuner and Kristina Vogel, as well as Run DMC, who had a worldwide hit with ‘My adidas’.
2019 FINANCIAL RESULTS
In terms of business, top-line growth and another strong profitability improvement in 2019 put us in a position to complete our strategic cycle ‘Creating the New’ successfully. Although held back by supply chain shortages, we increased sales to € 23.6 billion, reflecting currency- neutral growth of 6% and nominal growth of 8%. Our gross margin climbed 20 basis points to 52%. Our operating margin improved 40 basis points to a level of 11.3%, the highest operating margin in the history of our company. Our net income from continuing operations again grew significantly faster than our top line, up 12% to a record € 1.9 billion.
ATTRACTIVE CASH RETURN TO SHAREHOLDERS
Our strategy ‘Creating the New’ includes a strong commitment to returning cash to you, our shareholders, through both dividends and share buybacks. In 2019, we continued to deliver on this promise. We completed the second tranche of our current multi-year share buyback program, repurchasing 3.2 million shares for a consideration of € 815 million. Taking into account the dividend payment of € 664 million for the financial year 2018, which was paid out in May 2019, the total amount of cash the company returned to its shareholders in 2019 was again € 1.5 billion.
FOCUS ON STRATEGIC GROWTH DRIVERS PAYS OFF
Our strategic growth drivers adidas North America, Greater China and E-commerce all contributed over-proportionally to our currency-neutral growth. E-com was our fastest- growing channel with a 34% increase year-over-year, confirming the strategic importance of building the perfect store for our consumers online with adidas.com and reebok.com. Greater China grew at a double-digit rate for the fifth year in a row, up 15%, as we capitalized on important brand and shopping moments such as Singles’ Day and an early Chinese New Year.
adidas North America was impacted the most by our supply chain shortages, but still grew 7%.
This means we continued to gain market share in the largest sporting goods market in the world.
Our top line was driven by growth in all market segments. Our home market Europe returned to growth with a 3% sales increase. Latin America grew 7%, Emerging Markets 13% and Russia/CIS 8%.
CLEAR COMMITMENT TO SUSTAINABILITY
adidas’ commitment to sustainability started way before the topic gained global attention. For 20 years, we have been a change leader in our industry, as evidenced by our inclusion for the 20th time in the Dow Jones Sustainability Indices, a family of benchmarks evaluating the sustainability performance of the largest 2,500 companies listed in the Dow Jones Global Total Stock Market Index.
009
ADIDASANNUAL REPORT 20191
LETTER FROM THE CEO
In terms of integrating sustainability in our business model, we produced a record more than eleven million pairs of shoes containing plastic waste collected from beaches and coastal regions in 2019, more than double the amount produced the year before. From 2024 onward, we are committed to using only recycled polyester. Our fight to end plastic waste is the best expression of our purpose that, through sport, we have the power to change lives. The increasing use of recycled materials is just one example of our sustainability activities. The spectrum ranges from waste prevention and new types of take-back programs for used products, to climate protection. This will contribute to our ultimate goal of climate neutrality in all our activities as well as our supply chain by 2050.
2020 OUTLOOK
2020 is the last year of our five-year strategy cycle ‘Creating the New’. We have come a long way since we embarked on this journey at the beginning of 2016. We added almost € 7 billion to our top line, drove operating margin up nearly 500 basis points and increased net income by
€ 1.2 billion. Already today, adidas is a much better and stronger company than ever before.
But we will not stop here. Like every athlete, we train and work hard to up our game season after season, year after year. For 2020, we are targeting a currency-neutral sales increase of between 6% and 8%. By further leveraging our scalable operating model, net income is expected to once again grow at a double-digit rate to a level of more than € 2.1 billion. Operating margin is expected to come in between 11.5% and 11.8%. These figures will enable us to fully achieve our 2020 financial ambition.
The company’s outlook for 2020 as outlined in this report is subject to change depending on the further developments related to the coronavirus outbreak.
IN CLOSING
Together with all adidas employees, I am very much looking forward to 2020. It will be an exciting year for our company. We will continue on our international growth track, accelerate our digital transformation and make our product range at adidas and Reebok even more sustainable. Through high-performing athletes, innovative products and inspiring marketing campaigns, adidas will take center-stage at the two major sport events of the year, the UEFA EURO 2020 and the Tokyo Olympics, and other important moments in sport and culture. We will finish our ‘Creating the New’ strategy with excellence before presenting our new strategy beyond 2020 in November. We are operating in an attractive industry and are well positioned for the future. Success is in our own hands.
Thank you for your ongoing support.
Sincerely yours,
K A S P E R R O R S T E D C E O
01 0
ADIDASANNUAL REPORT 20191
EXECUTIVE BOARD
OUR EXECUTIVE BOARD IS COMPRISED OF SIX MEMBERS. EACH BOARD MEMBER IS RESPONSIBLE FOR AT LEAST ONE
MAJOR FUNCTION WITHIN THE COMPANY.
Harm Ohlmeyer Chief Financial Officer
Roland Auschel Global Sales Martin Shankland
Global Operations
Karen Parkin
Global Human Resources Kasper Rorsted
Chief Executive Officer Brian Grevy
Global Brands
01 1 1
EXECUTIVE BOARD
ADIDASANNUAL REPORT 2019
KASPER RORSTED CHIEF EXECUTIVE OFFICER
Kasper Rorsted was born in Aarhus, Denmark, in 1962 and is a Danish national. He holds a degree in Business Studies from the International Business School, Denmark, and completed a series of Executive Programs at Harvard Business School, USA. Kasper Rorsted then gained valuable experience within the IT sector through various management positions at Oracle, Compaq and Hewlett Packard. In 2005, Kasper Rorsted joined consumer goods manufacturer Henkel as Executive Vice President Human Resour ces, Purchasing, Information Technologies and Infra structure Services. Three years after joining Henkel, he was appointed Chief Executive Officer. In 2016, Kasper Rorsted was appointed to the Executive Board of adidas. After two months as a Board member, he became Chief Executive Officer.
Mandates:
— Member of the Board of Directors, Nestlé S.A., Vevey, Switzerland
— Member of the Supervisory Board, Bertelsmann SE & Co. KGaA / Bertelsmann Management SE, Gütersloh, Germany 1
1 Until March 31, 2019.
ROLAND AUSCHEL GLOBAL SALES
Roland Auschel was born in Bad Waldsee, Germany, in 1963 and is a German citizen. After obtaining a Bachelor’s degree in European Business Studies from the Münster University of Applied Sciences, Germany, and the University of Hull, UK, as well as an MBA from the University of Miami, USA, he joined the adidas team as a Strategic Planner in 1989. During his career with the company, he has held many senior management positions, including Business Unit Manager, Key Account Manager Europe and Head of Region Europe, Middle East and Africa. In 2009, he became Chief Sales Officer Multichannel Markets. In 2013, Roland Auschel was appointed to the Executive Board and is respon sible for Global Sales.
FOR MORE
INFORMATION ON THE ADIDAS AG EXECUTIVE BOARD
↗ ADIDAS-GROUP.COM/EXECUTIVE-BOARD
01 2 1
ADIDASANNUAL REPORT 2019BRIAN GREVY
2GLOBAL BRANDS
Brian Grevy was born in Kolding, Denmark, in 1971 and is a Danish citizen. After his studies at the Business School in Vejle, Denmark, he held various leadership positions at adidas and Reebok Nordics between 1998 and 2006. In 2006, he transferred to the adidas headquarters in Herzogenaurach, Germany, to become Director Men’s Training and, as of 2010, Senior Vice President Training & Regional Sports. From 2012 to 2014, Brian Grevy acted as General Manager adidas Nordics in Stockholm, Sweden. During the years 2014 to 2016, he led the adidas Business Unit Training as General Manager in Herzogenaurach, Germany. He then joined Gant in Stockholm, Sweden, as Chief Marketing Officer, where he became Chief Executive Officer in 2018.
In 2020, Brian Grevy was appointed to the adidas Executive Board and is responsible for Global Brands.
Mandates:
— Member of the Board of Directors, Pitzner Gruppen Holding A/S, Copenhagen, Denmark
2 Since February 1, 2020.
HARM OHLMEYER CHIEF FINANCIAL OFFICER
Harm Ohlmeyer was born in Hoya, Germany, in 1968 and is a German national. He holds a degree in Business Studies from the University of Regensburg, Germany, as well as an MBA from Murray State University, USA. Harm Ohlmeyer started his career with adidas in 1998 and gained extensive experience in the areas of Finance and Sales, including responsibility as Senior Vice President Finance TaylorMade-adidas Golf in Carlsbad, USA, Senior Vice President Finance adidas Brand and Senior Vice President Finance for Global Sales (adidas and Reebok). From 2011, he led the company’s e-commerce business as Senior Vice President Digital Brand Commerce. From 2014 to 2016, he held additional responsibility as Senior Vice President Sales Strategy and Excellence. In 2017, Harm Ohlmeyer was appointed to the Executive Board and subse- quently became Chief Financial Officer and Labor Director.
01 3 1
ADIDASANNUAL REPORT 2019 EXECUTIVE BOARDMARTIN
SHANKLAND
3GLOBAL OPERATIONS
Martin Shankland was born in Sydney, Australia, in 1971 and is an Australian national. He holds a Bachelor of Commerce degree from the University of New South Wales, Australia, and completed the Professional Year Program at the Australian Institute of Chartered Accountants. He joined adidas in 1997 as Finance Director for adidas Russia/CIS and was Managing Director from 2000 to 2017. From 2017 to 2019, he led adidas Emerging Markets as Managing Director.
In 2019, Martin Shankland was appointed to the Executive Board and is responsible for Global Operations.
3 Since March 4, 2019.
KAREN PARKIN GLOBAL HUMAN RESOURCES
Karen Parkin was born in Bowden, UK, in 1965, is a British national and also holds a US passport.
She obtained a Bachelor’s degree in Education from Sheffield Hallam University, UK. Karen Parkin joined adidas in 1997 as Sales Director adidas UK, where she was Head of Customer Service from 2000 to 2001 and Business Development Director from 2001 to 2004. In 2004, she relocated to adidas America as Vice President Business Development, subsequently taking on responsibility for the supply chain function at adidas America in 2007 as Vice President Logistics and Supply Chain North America. In 2013, she was appointed as Senior Vice President Global Supply Chain Management, based both at the company’s headquarters in Herzogenaurach and at the adidas America headquarters in Portland, USA. Since 2014, she has held the position of Chief HR Officer. In 2017, Karen Parkin was appointed to the Executive Board and is responsible for Global Human Resources.
Member of the Executive Board until February 26, 2019:
GIL STEYAERT GLOBAL OPERATIONS
Mandates:
— Member of the Supervisory Board, Fashion for Good B.V., Amsterdam, the Netherlands4
4 Until February 26, 2019.
Member of the Executive Board until December 31, 2019:
ERIC LIEDTKE GLOBAL BRANDS
Mandates:
— Member of the Board of Directors, Carbon, Inc., Redwood City, USA
— Member of the Supervisory Board, Fashion for Good B.V., Amsterdam, The Netherlands5
5 From April 25, 2019 until December 31, 2019.
01 4 1
ADIDASANNUAL REPORT 2019SUPERVISORY BOARD
IGOR LANDAU
CHAIRMANresiding in Lugano, Switzerland born on July 13, 1944
Member of the Supervisory Board since May 13, 2004
Pensioner
THOMAS RABE
DEPUTY CHAIRMAN1 residing in Berlin, Germany born on August 6, 1965Member of the Supervisory Board since May 9, 2019
Chairman and Chief Executive Officer, Bertelsmann Management SE, Gütersloh, Germany
Chief Executive Officer, RTL Group S.A., Luxembourg, Luxembourg
— Member of the Supervisory Board, Symrise AG, Holzminden, Germany 2 Membership in comparable domestic and foreign controlling bodies of commercial enterprises
Mandates held in foreign subsidiaries of Bertelsmann SE & Co. KGaA:
— Chairman of the Board of Directors, Penguin Random House LLC, New York, USA
— Member of the Supervisory Board, Majorel Group Luxembourg S.A., Luxembourg, Luxembourg3
IAN GALLIENNE
residing in Gerpinnes, Belgium born on January 23, 1971
Member of the Supervisory Board since June 15, 2016
Chief Executive Officer, Groupe Bruxelles Lambert, Brussels, Belgium
— Member of the Board of Directors, Pernod Ricard SA, Paris, France
— Member of the Board of Directors, SGS SA, Geneva, Switzerland Mandates within the Groupe Bruxelles Lambert or in entities under common control with the Groupe Bruxelles Lambert:
UDO MÜLLER*
DEPUTY CHAIRMAN4
residing in Herzogenaurach, Germany born on April 14, 1960
Member of the Supervisory Board since October 6, 2016
Director Communication, Herzogenaurach, adidas AG, Herzogenaurach, Germany
* Employee representative.
1 Since May 9, 2019.
2 Until December 31, 2019; chairmanship until August 7, 2019.
3 Since January 4, 2019; formerly known as ACR – Advanced Customer Relation S.à.r.l.
4 Since May 9, 2019.
5 Since November 19, 2019.
6 Until resigning the Executive Board mandate at Henkel AG & Co. KGaA on April 9, 2019.
BIOGRAPHICAL
INFORMATION ON OUR SUPERVISORY BOARD MEMBERS IS AVAILABLE ONLINE
↗ ADIDAS-GROUP.COM/SUPERVISORY-BOARD
PETRA AUERBACHER*
residing in Emskirchen, Germany born on December 27, 1969
Member of the Supervisory Board since May 9, 2019
Project Manager Creative Direction, adidas AG, Herzogenaurach, Germany
— Member of the Board of Directors, Imerys SA, Paris, France
— Member of the Board of Directors, Sienna Capital S.à r.l., Strassen, Luxembourg
— Member of the Board of Directors, Compagnie Nationale à Portefeuille SA, Loverval, Belgium
— Member of the Board of Directors, Frère- Bourgeois SA, Loverval, Belgium
— Member of the Board of Directors, Château Cheval Blanc, Société Civile, Saint-Émilion, France
— Member of the Board of Directors, GBL Advisors Ltd., London, United Kingdom
— Member of the Board of Directors, GBL Development Ltd., London, United Kingdom
— Member of the Supervisory Board, Marnix French ParentCo SAS (Webhelp Group), Paris, France5
ROSWITHA HERMANN*
residing in Erlangen, Germany born on December 27, 1962
Member of the Supervisory Board since May 9, 2019
Full-time member of the Works Council Herzogenaurach, adidas AG,
Herzogenaurach, Germany
Deputy Chairwoman of the Works Council Herzogenaurach, adidas AG,
Herzogenaurach, Germany
HERBERT KAUFFMANN
residing in Stuttgart, Germany born on April 20, 1951Member of the Supervisory Board since May 7, 2009
Independent Management Consultant, Stuttgart, Germany
KATHRIN MENGES
residing in Großenbrode, Germany born on October 16, 1964
Member of the Supervisory Board since May 8, 2014
Self-employed entrepreneur
Mandates held within the Henkel Group6:
— Member of the Supervisory Board, Henkel Central Eastern Europe GmbH, Vienna, Austria
— Member of the Supervisory Board, Henkel Nederland B.V., Nieuwegein, The Netherlands
— Member of the Board of Directors, Henkel Norden AB, Stockholm, Sweden
— Member of the Board of Directors, Henkel Finland Oy, Vantaa, Finland
01 5
ADIDASANNUAL REPORT 2019 SUPERVISORY BOARD1
ROLAND NOSKO*
residing in Wolnzach, Germany born on August 19, 1958
Member of the Supervisory Board since May 13, 2004
District Manager of the Industrial Union IG Bergbau, Chemie, Energie (IG BCE), District of Nuremberg, Nuremberg, Germany
— Deputy Chairman of the Supervisory Board, CeramTec GmbH, Plochingen, Germany
— Member of the Supervisory Board, Plastic Omnium Automotive Exteriors GmbH, Munich, Germany
* Employee representative.
7 Until December 31, 2019.
8 Since July 18, 2019.
9 Until May 15, 2019.
10 Until May 22, 2019.
11 Until resigning the Executive Board mandate at Daimler AG on May 22, 2019.
12 Since January 1, 2020; Ian Gallienne until December 31, 2019.
BEATE ROHRIG*
residing in Glashütten, Germany born on March 24, 1965
Member of the Supervisory Board since May 9, 2019
State District Manager of the Industrial Union IG Bergbau, Chemie, Energie (IG BCE), State District Bavaria, Munich, Germany
— Member of the Supervisory Board, Evonik Nutrition & Care GmbH, Essen, Germany
— Member of the Supervisory Board, Heraeus Holding GmbH, Hanau, Germany7
— Member of the Supervisory Board, Wacker Chemie AG, Munich, Germany8
NASSEF SAWIRIS
residing in London, United Kingdom born on January 19, 1961
Member of the Supervisory Board since June 15, 2016
Chief Executive Officer and Member of the Board of Directors, OCI N.V., Amsterdam, The Netherlands
— Member of the Board of Directors, LafargeHolcim Ltd., Jona, Switzerland 9
FRANK SCHEIDERER*
residing in Wilhelmsdorf, Germany born on April 16, 1977
Member of the Supervisory Board since May 9, 2019
Director Head Office – Brand & Sales Finance, adidas AG, Herzogenaurach, Germany
MICHAEL STORL*
residing in Oberreichenbach, Germany born on July 3, 1959
Member of the Supervisory Board since May 9, 2019
Full-time member of the Works Council Herzogenaurach, adidas AG,
Herzogenaurach, Germany
BODO UEBBER
residing in Stuttgart, Germany born on August 18, 1959
Member of the Supervisory Board since May 9, 2019
Independent Management Consultant
— Member of the Supervisory Board, Bertelsmann SE & Co. KGaA/
Bertelsmann Management SE, Gütersloh, Germany
— Chairman of the Supervisory Board, Daimler Financial Services AG, Stuttgart, Germany 10
Membership in comparable domestic and foreign controlling bodies of commercial enterprises11:
— Member of the Board of Directors, BAIC Motor Corporation Ltd., Beijing, China
— Member of the Board of Directors, Mercedes-Benz Grand Prix Ltd., Brackley, United Kingdom
— Member of the Board of Directors, Delta Topco Ltd., St Helier, Jersey, United Kingdom
JING ULRICH
residing in Hong Kong, China born on June 28, 1967
Member of the Supervisory Board since May 9, 2019
Vice Chairman of Global Banking and Asia Pacific, JPMorgan Chase & Co., New York, USA
GÜNTER WEIGL*
residing in Oberreichenbach, Germany born on April 14, 1965
Member of the Supervisory Board since May 9, 2019
Senior Vice President Global Sports Marketing & Brand Relations, adidas AG, Herzogenaurach, Germany
STANDING COMMITTEES AS OF MAY 9, 2019
Steering Committee:
Igor Landau (Chairman), Udo Müller*, Thomas Rabe General Committee:
Igor Landau (Chairman), Udo Müller*, Roland Nosko*, Thomas Rabe Audit Committee:
Herbert Kauffmann (Chairman), Frank Scheiderer*, Bodo Uebber12, Günter Weigl*
Nomination Committee:
Igor Landau (Chairman), Kathrin Menges, Thomas Rabe
Mediation Committee pursuant to § 27 section 3 Co-Determination Act (MitbestG):
Igor Landau (Chairman), Roswitha Hermann*, Udo Müller*, Thomas Rabe
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ADIDASANNUAL REPORT 20191
STANDING COMMITTEES UNTIL MAY 9, 2019
Steering Committee: Igor Landau (Chairman), Sabine Bauer*, Willi Schwerdtle
General Committee: Igor Landau (Chairman), Sabine Bauer*, Roland Nosko*, Willi Schwerdtle Audit Committee: Herbert Kauffmann (Chairman), Ian Gallienne, Dr. Wolfgang Jäger*, Hans Ruprecht*
Finance and Investment Committee: Igor Landau (Chairman), Sabine Bauer*, Dr. Wolfgang Jäger*, Herbert Kauffmann Nomination Committee: Igor Landau (Chairman), Kathrin Menges, Willi Schwerdtle
Mediation Committee pursuant to § 27 section 3 Co-Determination Act (MitbestG): Igor Landau (Chairman), Sabine Bauer*, Willi Schwerdtle, Heidi Thaler-Veh*
SABINE BAUER*
DEPUTY CHAIRWOMAN
Full-time member of the Works Council Herzogenaurach, adidas AG
Chairwoman of the European Works Council, adidas AG
MEMBERS OF THE SUPERVISORY BOARD UNTIL MAY 9, 2019:
WILLI SCHWERDTLE
DEPUTY CHAIRMANIndependent Management Consultant as well as Partner, WP Force Solutions GmbH, Bad Homburg v. d. Höhe, Germany
— Member of the Supervisory Board, Eckes AG, Nieder-Olm, Germany
— Chairman of the Supervisory Board, Windeln.de SE, Munich, Germany
KATJA KRAUS
Author/Managing Partner, Jung von Matt/
sports GmbH, Hamburg, Germany
DR. WOLFGANG JÄGER*
Research Fellow at the Institute for Social Movements at the Ruhr Universität Bochum, Expert Commission ‘Cultures of
remembrance of social democracy’ of Hans- Böckler-Stiftung, Bochum, Germany
DR. FRANK APPEL
Chief Executive Officer, Deutsche Post AG, Bonn, Germany
HANS RUPRECHT*
Vice President Customer Service Central, adidas AG
DIETER HAUENSTEIN*
Specialist for job safety, adidas AG
HEIDI THALER-VEH*
Full-time member of the Works Council Uffenheim, adidas AG
Chairwoman of the Works Council Uffenheim, adidas AG
Deputy Chairwoman of the Central Works Council, adidas AG
KURT WITTMANN*
Full-time member of the Works Council Herzogenaurach, adidas AG
* Employee representative.
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ADIDASANNUAL REPORT 2019 SUPERVISORY BOARD1
DEAR SHAREHOLDERS,
Last year, the company’s success story from the foundation in 1949 up until today was highlighted in an impressive manner by a successful 70th anniversary celebration and the completion of the extension of the headquarters in Herzogenaurach, Germany. From a financial point of view, too, we look back on 2019 as another successful year. Thanks to a sharp focus on our consumers’ needs as part of the stringent execution of our strategic business plan ‘Creating the New’, the company was once again able to increase sales and achieve strong bottom-line growth in the 2019 financial year. While double-digit growth in the key e-commerce sales channel as well as in our focus market Greater China merit special mention, the company’s growth as a whole was broad-based, with top-line increases in all regions, including our home market Europe. Supply chain shortages which slowed the company’s growth, mainly in North America in the first half of the year, were quickly and permanently mitigated. In light of this sales momentum as well as the continuing high investments into our brands and the scalability of the business, the company is in an excellent position to successfully conclude the strategy cycle 2015-2020 in the current financial year. We continue to ensure that we share the positive development of the company with our shareholders, as underscored by the total cash return from the dividend payout and share buyback of € 1.5 billion in 2019.
SUPERVISION AND ADVICE IN DIALOGUE WITH THE EXECUTIVE BOARD
In the year under review, we performed all of our tasks laid down by law, the Articles of Association, the German Corporate Governance Code (‘Code’) and the Rules of Procedure carefully and conscientiously, as in previous years. We regularly advised the Executive Board on the management of the company and diligently and continuously supervised its management activities, assuring ourselves of the legality, expediency and regularity thereof. The Executive Board involved us directly and in a timely and comprehensive manner in all of the company’s fundamental decisions.
The Executive Board informed us extensively and regularly through written and oral reports.
This information covered all relevant aspects of the company’s business strategy, business planning (including finance, investment and personnel planning), the course of business and the company’s financial position and profitability. We were also kept up to date on matters relating to accounting processes, the risk situation and the effectiveness of the internal control and risk management systems and compliance as well as all major decisions and business transactions. The Executive Board always explained immediately and in a detailed manner any deviations in business performance from the established plans, and we discussed these matters in depth.
The Executive Board regularly provided us with comprehensive written reports for the preparation of our meetings. We thus always had the opportunity to critically analyze the Executive Board’s reports and resolution proposals within the committees and within the Supervisory Board as a whole and to put forward suggestions before passing resolutions after in-depth examination and extensive consultation. At the Supervisory Board meetings, the Executive Board was available to discuss and answer our questions. In the periods between our meetings, the Executive Board also provided us with extensive, timely monthly reports on the current business situation. We critically examined and specifically challenged the information provided to us by the Executive Board.
In the past financial year, the Supervisory Board primarily exercised its duties in plenary sessions. We held eight regular meetings of the entire Supervisory Board, one of which was a constituent meeting and one which took place outside Germany. Moreover, one resolution was passed by way of a circular resolution.
As in previous years, we were able to record a constantly high participation rate in our consultations despite a high number of meetings in the year under review. The overall attendance rate of the members at the meetings of the Supervisory Board and its committees was around 96% in the year under review. Members who were unable to participate in the meetings took part in the resolutions by submitting their vote in writing. SEE TABLE 1
SUPERVISORY BOARD REPORT
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ADIDASANNUAL REPORT 20191
Individual meeting participation of the Supervisory Board members
in meetings of the Supervisory Board in the 2019 financial year 1
Number of
meetings Participation Participation in % Members of the Supervisory Board as at December 31, 2019
Igor Landau, Chairman of the Supervisory Board 16 16 100
Udo Müller, Deputy Chairman of the Supervisory Board 1 12 11 92
Thomas Rabe, Deputy Chairman of the Supervisory Board 2 9 8 89
Petra Auerbacher 2 4 100
Ian Gallienne 13 12 92
Roswitha Hermann 2 4 3 75
Herbert Kauffmann 13 13 100
Kathrin Menges 10 10 100
Roland Nosko 14 14 100
Beate Rohrig 2 4 3 75
Nassef Sawiris 8 8 100
Frank Scheiderer 2 7 7 100
Michael Storl 2 4 4 100
Bodo Uebber 2 4 4 100
Jing Ulrich 2 4 3 75
Günter Weigl 2 7 7 100
Members of the Supervisory Board until the end of the Annual General Meeting on May 9, 2019
Sabine Bauer, Deputy Chairwoman of the Supervisory Board 6 6 100
Willi Schwerdtle, Deputy Chairman of the Supervisory Board 7 7 100
Dr. Frank Appel 4 4 100
Dieter Hauenstein 4 4 100
Dr. Wolfgang Jäger 6 6 100
Katja Kraus 4 4 100
Hans Ruprecht 6 6 100
Heidi Thaler-Veh 4 4 100
Kurt Wittmann 4 4 100
1 Deputy Chairman of the Supervisory Board from the end of the Annual General Meeting on May 9, 2019 2 Member of the Supervisory Board from the end of the Annual General Meeting on May 9, 2019
In the periods between meetings, the Supervisory Board Chairman and the Audit Committee Chairman maintained regular contact with the Chief Executive Officer and the Chief Financial Officer, conferring on matters such as corporate strategy, business planning and development, the risk situation and risk management as well as compliance. In addition, the Supervisory Board Chairman was informed about events of fundamental importance for the management and for evaluating the situation and development of the company, when necessary also at short notice.
The Supervisory Board also regularly conferred on, in particular, Supervisory Board matters and personnel matters of the Executive Board without the Executive Board.
TOPICS FOR THE ENTIRE SUPERVISORY BOARD
Our consultations and examinations focused on the following topics:SITUATION AND BUSINESS DEVELOPMENT
The development of sales and earnings, the employment situation as well as the financial position of the company and the business development of the company’s individual business areas and markets were presented to us in detail by the Executive Board at every Supervisory Board meeting and were discussed regularly. Moreover, we discussed the company’s business strategy and the annual and multi-year business planning of the Executive Board. In this context, we were particularly informed on a regular basis about the progress made in mitigating the supply chain shortages in North America. Further topics which were always discussed were the possible impact of global economic developments as well as the development of the individual brands and markets.
The Executive Board outlined the company’s situation and retail strategy at the February meeting. We also discussed important potential and pending legal disputes. The Executive Board reported on the financial figures for the 2018 financial year at the balance sheet meeting in March. After in-depth examination of the financial statements, the Supervisory Board approved the annual financial statements and consolidated financial statements as well as the combined Management Report, including the non-financial statement for adidas AG and the Group as at December 31, 2018. The annual financial statements were thus adopted. Prior to the passing of the resolution, the auditor reported on the material results of the audit, including the results of the examination of the content of the non-financial statement commissioned by the Supervisory Board in accordance with § 111 section 2 sentence 4 German Stock Corporation Act (Aktiengesetz – AktG). Furthermore, the Supervisory Board Report to the Annual General Meeting for the 2018 financial year was approved. Finally, we discussed, inter alia, the business development of Reebok and innovation at adidas. At the May meeting, we primarily dealt with The external auditor, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, (KPMG) attended all
regular meetings of the Supervisory Board, with the exception of the meeting which took place outside Germany, insofar as no Executive Board matters or internal matters of the Supervisory Board were dealt with. KPMG also attended all meetings of the Audit Committee.
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ADIDASANNUAL REPORT 2019 SUPERVISORY BOARD REPORT1
4
the results for the first quarter of the year under review. Particular topics of the August meeting were the financial results for the second quarter and the first half year. We also discussed the business development in Emerging Markets and dealt in detail with the main sustainability initiatives. At our annual strategy meeting in October, we discussed the details presented by the Executive Board regarding the strategic business plan ‘Creating the New’. Another focal point of the October meeting was the development of business in Asia-Pacific. Finally, topics of our December meeting were the 2020 Budget and Investment Plan as well as the marketing and sponsorship agreements concluded in the year under review.
TRANSACTIONS REQUIRING SUPERVISORY BOARD APPROVAL
In accordance with statutory regulations or the Rules of Procedure of the Supervisory Board, certain transactions and measures require the prior approval of the Supervisory Board. We approved the following measures in the period under review:
In March, we approved the resolutions proposed to the Annual General Meeting on May 9, 2019 (‘2019 Annual General Meeting’), including the proposal regarding the appropriation of retained earnings for the 2018 financial year. At the May meeting, we approved the adjusted resolution proposal of the Executive Board on the appropriation of retained earnings. The adjustment was necessary as the number of dividend-entitled shares had decreased since the publication of the invitation to the Annual General Meeting, due to the ongoing share buyback program.
Furthermore, we approved Eric Liedtke taking over a supervisory board mandate at Fashion for Good B.V. At our December meeting, after comprehensive consultation, we approved the 2020 Budget and Investment Plan of the Executive Board.
COMPOSITION OF THE EXECUTIVE BOARD
In the year under review, we dealt extensively with personnel matters of the Executive Board.
We appointed Martin Shankland as a new member of the Executive Board, responsible for Global Operations, with effect from March 2019. Martin Shankland succeeded Gil Steyaert. As successor to Eric Liedtke, we appointed Brian Grevy as a member of the Executive Board, responsible for Global Brands, with effect from February 1, 2020. Moreover, we extended the Executive Board mandates of Karen Parkin, responsible for Global Human Resources, and Harm Ohlmeyer, responsible for Finance, for another five years until 2025, respectively.
In this respect and after in-depth examination, we approved the newly concluded Executive Board service contracts with Martin Shankland and Brian Grevy as well as the amended Executive Board contracts of Karen Parkin and Harm Ohlmeyer as part of the extension of their
mandates. We also discussed the long-term succession planning for the Executive Board based on the General Committee’s preparations.
EXECUTIVE BOARD COMPENSATION
Another focal point of our work was Executive Board compensation. After an in-depth review of the individual performance of the Executive Board members and the achievement of the targets set for the 2018 Performance Bonus and the 2018 tranche for the Long-Term Incentive Plan 2018/2020 (‘LTIP 2018/2020’), we resolved upon the performance-related compensation to be paid to the Executive Board members for the 2018 Performance Bonus and the 2018 LTIP tranche at our meetings in February. The Supervisory Board also determined the appropriateness of the Executive Board compensation. Furthermore, after comprehensive consultation, we set the criteria and targets decisive for the 2019 Performance Bonus and the 2019 tranche for the LTIP 2018/2020 along with the individual bonus target amounts for each Executive Board member at our meetings in February and March.
Further detailed information on the Executive Board compensation can be found in the Compensation Report. SEE COMPENSATION REPORT, P. 30
CORPORATE GOVERNANCE
The Supervisory Board regularly monitors the application and further development of the corporate governance regulations within the company, in particular the implementation of the recommendations of the Code. The General Committee and the entire Supervisory Board proactively discussed in depth the changed requirements of the German Stock Corporation Act and the Code in regard to corporate governance at their meetings in October and December.
Further detailed information on corporate governance within the company can be found in the Declaration on Corporate Governance and Corporate Governance Report. SEE DECLARATION ON CORPORATE GOVERNANCE AND CORPORATE GOVERNANCE REPORT, P. 24
Following an in-depth discussion, the current Declaration of Compliance pursuant to § 161 AktG was resolved upon by the Executive Board and Supervisory Board of adidas AG in December 2019 and was made permanently available on our website. ↗ ADIDAS-GROUP.COM/S/CORPORATE-GOVERNANCE
During our consultations regarding the Declaration of Compliance, we particularly discussed the independence of the members of the Supervisory Board as per the respective independence criteria. In the Supervisory Board’s assessment, all Supervisory Board members representing the shareholders were independent within the meaning of section 5.4.2 of the Code in the year under review.
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ADIDASANNUAL REPORT 20191
In the year under review, no conflicts of interest arose in regard to the Executive Board members. There were also no conflicts of interest within the Supervisory Board. It must be pointed out that the company concluded a contract with a company in which one Supervisory Board member in office until the end of the 2019 Annual General meeting is involved. The Supervisory Board had already approved this contract and the business volume stipulated in this contract in December 2018. In the view of the Supervisory Board, there was no conflict of interest. Nevertheless, as in previous years, the Supervisory Board member concerned did not participate in the voting on the respective resolution.
Both the Supervisory Board and the Audit Committee reviewed the efficiency of their work in the 2018 financial year. The members of the Supervisory Board assessed the work in the entire Supervisory Board and in the Audit Committee as efficient in both cases and resolved upon individual improvements regarding the organization of the Supervisory Board’s work. These improvements were implemented in the year under review. The next efficiency examination of the Supervisory Board and Audit Committee is scheduled for the 2020 financial year in light of, inter alia, the changed composition of the Supervisory Board as a result of the new election of the shareholder and employee representatives in 2019.
The members of the Supervisory Board are individually responsible for undertaking any necessary training and further education measures required for their tasks. In the year under review, the company offered the newly elected members of the Supervisory Board an onboarding program relating to the work of the Supervisory Board at adidas AG in order to facilitate the exercise of their mandates. Furthermore, in the context of the Supervisory Board meeting outside Germany, the company enabled members of the Supervisory Board to visit key suppliers in Vietnam.
EFFICIENT COMMITTEE WORK
In order to perform our tasks in an efficient manner, we have established a total of five standing Supervisory Board committees. SEE SUPERVISORY BOARD, P. 15 The newly elected Supervisory Board resolved at its constituent meeting in May to no longer constitute the Finance and Investment Committee.
The committees prepare resolutions and topics for the meetings of the entire Supervisory Board. Within the legally permissible framework and in appropriate cases, we have furthermore delegated the Supervisory Board’s authority to pass certain resolutions to individual committees. With the exception of the Audit Committee, the Supervisory Board Chairman also chairs all the standing committees. Herbert Kauffmann is the Chairman of the Audit Committee.
The respective committee chairmen report to the Supervisory Board on the content and results of the committee meetings on a regular and comprehensive basis.
— The Steering Committee did not meet in the year under review.
— The General Committee held six meetings in the year under review.
The main focus was the preparation of the resolutions of the entire Supervisory Board regarding personnel matters of the Executive Board and Executive Board compensation. The General Committee particularly discussed the resignation of Gil Steyaert and Eric Liedtke, the appointment of Martin Shankland and Brian Grevy as well as the extension of the mandates of Karen Parkin and Harm Ohlmeyer. With reference to the Executive Board compensation, the primary focus was on preparation of the resolutions relating to target achievement for the 2018 Performance Bonus and the 2018 LTIP tranche and the targets for the 2019 Performance Bonus and the 2019 LTIP tranche, as well as on the establishment of the appropriateness of the Executive Board compensation. Furthermore, the General Committee dealt intensively with long-term succession planning for the Executive Board as well as with the changed requirements of the German Stock Corporation Act and the Code in regard to corporate governance.
— The Audit Committee held five meetings in the year under review. One resolution was passed by way of a circular resolution. The Chief Financial Officer and the auditor were present at all meetings and reported to the committee members in detail.
In addition to the supervision of the accounting process, the committee’s work also focused on the examination of the annual financial statements and the consolidated financial statements for 2018, including the combined Management Report and the non-financial statement of adidas AG and the Group, as well as the Executive Board’s proposal regarding the appropriation of retained earnings. Following an in-depth review of the audit reports on the annual financial statements and consolidated financial statements with the auditor, the committee decided to recommend that the Supervisory Board approve the 2018 annual financial statements and consolidated financial statements. Furthermore, the audit of the non-financial statement, including the selection and commissioning of the external auditor by the Supervisory Board, was prepared. In addition, the Audit Committee resolved to recommend that the Supervisory Board commission KPMG with the examination of the content of the non-financial statement with limited assurance pursuant to § 111 section 2 sentence 4 AktG. Following in-depth discussions, the Audit Committee also made a recommendation to the Supervisory Board regarding the proposal to the Annual General Meeting 2019 for the appointment of the auditor.
The Audit Committee declared to the Supervisory Board that the recommendation is free from undue influence by a third party and that no clause of the kind referred to in Article 16 section 6 of the EU Regulation No. 537/2014 of the European Parliament and of the Council of
